There was a time in the UK when most people were under the impression that financial advice was free. They went to see an adviser. He gave them advice. They handed over their money to him to be looked after. They never got a bill.
Only when the government changed the laws in 2012 did they realise they were paying. A lot. They just hadn’t noticed for the simple reason that they did not physically pay it to the adviser. He just took a percentage of their pot of assets — that he had full control over and full access to.
This might sound familiar. If it does it is because it is exactly what is happening in the social media sector. Until very recently, most people did not understand that their Facebook and Twitter accounts — and many other apps they used — were not really “free”. Now they are beginning to realise that they have been paying. A lot.
Once again, they hadn’t noticed for the simple reason that they did not physically pay cash to their providers. Instead, the providers help themselves to payment from a pot of assets they have full control over and full access to. The only difference between Facebook and Google and financial services is that the assets in question are not stocks and bonds but personal data.
Nothing else is paid for in this fashion. If you buy any other services, say from lawyers or estate agents, you pay directly as a one-off transfer from you to them. If you buy physical goods, it is the same. Only bankers, fund managers, financial advisers and, crucially, data gathering businesses have the ability to help themselves to your stuff. If you start valuing your data as highly as your pension assets, you will get the point pretty quickly.
Companies that hold customer assets as part of providing a service must be held to higher standards. What should that mean in practice? A high level of compulsory transparency. The EU’s new General Data Protection Act makes a start. But it is only a start.
Consider the new banking app, Yolt, being launched by ING, one of Europe’s biggest banks. It allows you to amalgamate all your bank accounts in one place. But when you add your accounts in to the app, you also give it access to the past 12 months of transactions and all future ones, your account balance, your direct debits and standing orders, your overdraft limit and so on.
The blurb tells you how exciting it will be for you to “view everything in one place, see your spending habits, get smart insights and act on them”. If that is exciting for you, just imagine how thrilling it is for them!
Search engines such as Google use search patterns and locations to make assumptions about what users are up to. A well-made banking app doesn’t have to make assumptions. It knows. It knows where you work and what you earn; how much your mortgage is and how much you spend on utilities; whether you are in love or not; how much debt you have; how much you spend on your hobbies; what your regular habits are — and, how and when you deviate from those habits.
An app of this sort will not actually sell your data (the ones I have looked at are explicit about this), but they will, in Yolt’s words, use it to offer you products from “relevant and exciting partners”. Perhaps if it sees you breaching your overdraft limit, it might have a go at selling you a loan. If it sees your bank pays a very low interest rate on your savings, it will allow a competitor to offer you one with a special bonus rate. If it sees you are buying dinners for two and overpriced bunches of flowers it might offer you a new (bigger) mortgage or a car loan. If it sees you travelling to Portugal, it could steer you towards a foreign exchange broker.
It is time for regulators to force apps to give their customers more information about how much of their data will be used and how. As with financial providers, apps should be required to send users regular statements detailing how their data has been employed and what the consequences have been. If your data were used to sell you something, you should know that and how much the app provider received as commission.
You should also be given choices about how you want to pay. Users who like an app, but do not want to give it free rein with their data, should be able to pay a monthly cash fee.
Many people love using Facebook, Twitter and Google both socially and professionally. Elizabeth Linder, formerly head of Facebook’s London-based political division, points out that in some parts of the UK, people trust Facebook updates from their local police force even more than a phone call from a police officer. That is something that has value to the police and to the communities they serve, and some users might be happy to pay for it. But they are surely entitled to full transparency over how and how much they are paying.
The good news is that we already have a template for this oversight in the way we regulate firms that gather financial assets. The bad news for the data gatherers is that if customers actually knew how much they were paying for their “free” online services, they might be less enthusiastic about signing up for them. That realisation may be why Facebook, Google and Amazon shares all fell hard this week.
• This article was first published in the Financial Times.